Production boom--but not in jobs

Better machines; 17% fewer workers

Chicago-area factories, and those around the nation, are boosting productivity so aggressively that the manufacturing sector is poised this summer to eclipse its record June 2000 output with 17% fewer workers.

In Chicago, 109,100 manufacturing jobs, about 19%, have disappeared since June 2000, when there were 574,100 in the area. Many Chicago factory owners say demand for their products has increased significantly this year, but because of productivity gains, most won't need to hire new workers. Factories are full of shiny new machines that do the work of a dozen employees.

"We've never experienced growth like this and we've done it without adding employees," says Mark Miller, CEO of Prince Industries Inc., a Carol Stream-based industrial components maker. Prince supplies Caterpillar Inc. and Zebra Technologies Corp. It replaced eight temporary employees with a new Swedish laser-cutting machine that runs 24 hours a day, seven days a week. Mr. Miller says Prince's sales have increased 25% this year, and the 200-employee company expects revenues of $25 million in 2004.

Manufacturing activity nationwide grew for the 13th consecutive month in June, according to the Institute for Supply Management, and although the stock market hiccuped when the National Assn. of Purchasing Managers' Chicago June index slipped, the number remains solidly in growth territory.

"We've seen some of the best numbers in 20 years" in the Chicago index, says Bill Strauss, senior economist at the Federal Reserve Bank of Chicago. Mr. Strauss says he expects June or July industrial production to set a new U.S. record. The Fed will release June industrial production statistics on Thursday.

Increasing productivity may mean fewer jobs in Chicago and nationwide, but many factory owners say it is the only way their products can compete with goods produced in China and other low-wage countries.

Holding the line on hiring

"We can do more with less," says Otto Schultes, president of Schultes Precision Manufacturing Inc. in Buffalo Grove. His company recently bought a Kitamura Machinery Co. milling machine that is the only one of its size in the United States. The machine can be programmed with up to 80 different jobs at once, producing custom plates, valves and tubes out of plastic or metal.

"We can load it even on Saturdays or Sundays and it can run all day, lights out," Mr. Schultes says. "The old ones need someone standing there and the new ones are unattended."

Mr. Schultes says sales have increased 20% this year, even as he reduced head count to 102 employees from 110 through attrition. Other Chicago manufacturers report similar increases in sales without adding workers.

"We have been able to hold the line on hiring," says Jon Goreham, regional vice-president at Alro Steel Group in Melrose Park, which saw a "sharp uptick" in demand beginning late last year and invested in equipment to increase productivity.

Truck manufacturer Navistar International Corp. installed a new line at its Indianapolis plant and now can build a thousand engines a day using 1,200 workers--400 fewer workers than required three years ago, according to a spokesman. The Warrenville-based company has about 14,000 employees today, down from 18,500 in 1999.

Navistar lost $18 million in 2003 but predicts "solid" profitability and increases in sales volume this year, according to the spokesman, who says the company will call back some laid-off workers if orders continue to increase.

Strong forecast for demand

Even a prolonged economic boom is unlikely to lead to sustainable increases in manufacturing jobs, as managers look to add volume primarily through automation rather than new workers.

"We are putting in much more machinery and equipment to accommodate a forecast of increased demand for products we supply," says Brad Serlin, vice-president of Cicero-based United Scrap Metal Inc., a metal recycler that sells to mills and foundries.

At Skokie-based W. H. Salisbury & Co., which manufactures rubber safety equipment for the utility industry, "There are still some manual processes, but we're looking to streamline those," says Jeff Morris, vice-president of sales and marketing. Mr. Morris says there are 84 manufacturing employees at Salisbury's Chicago plant, down from a peak of 120 in 2000.

Going the way of farms

"The long-term pattern is an erosion in the share of manufacturing jobs in the economy," says Bill Testa, a director of Midwest economic research at the Chicago Fed. After World War II, one in three U.S. jobs was in manufacturing. Today, that number is fewer than one in eight and falling, because of surging factory productivity. The number of manufacturing jobs in Chicago peaked almost 40 years ago, in 1967, at 1.1 million, according to the U.S. Census.

"I would expect productivity to be much like what we have experienced in the farm sector," says Mr. Strauss. "We accomplish our farm output with just 2% of our labor today, as opposed to 50% of our labor in 1870. And output in the farm sector is higher than ever."

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